Australian tax reform may affect Chinese steel enterprises

14:08, May 05, 2010      

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Australia's tax reform will not only impact its domestic mining industry but also steel enterprises in China.

Australia will impose a new 40 percent tax on resource projects starting in July 2012, cut company tax from 30 to 28 percent by July 2014 and pour more money into worker pension funds. After this was announced on May 2, major resource stocks fell sharply on the news, dragging the benchmark S&P/ASX200 index down 21.9 points, or 0.46 percent, to 4,785.5.

Voracious demand from Asia for commodities such as coal and iron ore has seen Australia ride out the global downturn in better shape than any other advanced economy, Australian Finance Press (AFP) reported.

But the Australian government said the state royalties paid by companies such as BHP Billiton and Rio Tinto had not kept pace with surging profits and needed to be revised to ensure the benefits of the boom are shared with the nation.

"This long-term plan released today builds a stronger economy by using super profits earned from the resources owned by all Australians," Prime Minister Kevin Rudd told AFP.

It was expected that the new tax reform will raise some 2.8 billion U.S. dollars in the first year after its planned introduction in 2012.

According to BHP Billiton, the new tax means that the average tax on the company's operating profit in Australia will rise from 43 percent to 57 percent. Most mining companies believe that the introduction of new taxes will reduce overseas investment in Australia and reduce Australia's competitiveness in the international market.

The new tax will not only have great impact on the mining giants Rio Tinto and BHP Billiton but a large number of Australian local small and medium mining enterprises as well. It will also affect global commodity prices. The new tax on Australian mining enterprises will lead to rising prices and then transfer costs to the downstream business, so in the end consumers will likely foot the bill.

Australia is China‘s largest iron ore importer, and it is much closer to China than China's second largest iron ore importer Brazil. Therefore, in the past, China's iron ore imports from Australia have continued to grow. The impact brought by the tax reform will no doubt be transmitted to the Chinese steel enterprises.

By People's Daily Online


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